Strengthening fundamentals for the rice market

Some buyers are talking about a July 31 deadline for 2006 rice crop sales, saying that they will not buy rice that “tests positive” for GMO after that date. Such behavior may make some sellers angry, but in commodities, most of the time it is a buyer’s market, not a seller’s market. Also it is true that the buyer has the right not to buy your rice.

The buyer reserves the right to set the specifications for what he buys, how much he buys and when he buys it. Put another way, the customer is always right and the buyer is your customer when you are a seller, end of story.

The buyer, in turn, is at the mercy of his customers and their specifications.

Ironically, EU customers love U.S. rice, but the EU’s GMO regulation makes the sale of U.S. rice very risky, hence no significant rice exports from the United States to the EU right now.

Sometimes severe regulations stand between the buyer and the seller. So, one could say that a third factor in the rice market is food regulation.

So what do we make of the GMO talk? We have rice that tests positive for GMO at low levels of detection, and we have rice that does not test positive at low levels of detection. If there are very, very tiny amounts of GMO in a rice lot, then eventually at zero tolerance, the customer may prove to himself that it is there nonetheless.

If that happens, a seller with a boatload of rice in a foreign port is out in the cold. That is why the percentage of GMO presence needs to be set at a reasonable level so rice commerce can continue.

Most customers for U.S. rice have a tolerance level of 0.5 percent to 1 percent of adventitious presence, which would make the whole GMO issue go away. Did you know that? Did anybody tell you that?

What do I mean by “most customers?” Well other than the EU and perhaps the Philippines, the United States will have shipped or consumed about 170 million hundredweight of long grain rice this marketing year. Someone out there will buy U.S. rice with the risk of finding trace amounts of GMO in it.

I estimated that the long grain crop this coming year will be down by 10 million to 25 million hundredweight in addition to the 31 million hundredweight drop last year. Total supply this crop year will be about 160 million to 170 million hundredweight.

Is the 2007-08 marketing year a buyer’s market or a seller’s market? That is the key question right now aside from what you do with unsold rice you grew in 2006.

Where can the buyer not sell rice with trace levels of GMO? I ask this because next year there will be a big zero in carryover, not tolerance, if demand this year is replicated next year. Did anybody tell you that? No, of course they did not tell you that, perhaps you did not ask.

The answer to why the cash price had been so weak recently is that the farmer has to sell his rice because of this artificially imposed deadline and the buyer does not have to buy his rice, anytime anywhere, ever. That is the privilege of a buyer; they do not have to buy any rice.

The problem a seller has is that he must sell or pay for interest and storage until he sells his rice. He is a bit hung with his rice.

I suspect that it all boils down to the relationship between buyers and sellers. In most consumer markets it is caveat emptor, let the buyer beware; but in this market right now it is caveat vendor, let the seller beware. We are in a buyer’s market which is bearish, but we are moving into a seller’s market that is bullish. In between the two is a no man’s land over the next two months.

My only advice to you is to pick your cash buyer carefully next year. Learn from how you were treated by buyers this year.

The only way to deal with a grumpy buyer in a free market environment is to sell to someone else if you can. If you cannot sell to someone else then ask yourself the simple question, “Why did I grow rice in 2006 and why am I planting rice in 2007? Am I a glutton for punishment?”

It is a free country and you do not have to grow any particular crop if you own your own land. In 90 days all this will pass and the U.S rice industry will go onto the next challenge.

Cal Coolidge was reported to have said, “Of ten troubles you see coming down the road, nine will fall in a ditch before they reach you.” Maybe that is what is meant by counting to ten before you do or say something you might regret later.